《财务管理与分析》2004年版--营运能力比率分析-英文原文.docx
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《财务管理与分析》2004年版--营运能力比率分析-英文原文.docx
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OperatingCapacityRatioAnalysis
FrankJ.Fabozzi,PamelaP.Peterson
《FinancialManagementandAnalysis》[M],2004
Usingfinancialratioanalysis
Financialanalysisprovidesinformationconcerningafirm’soperatingperformanceandfinancialcondition.Thisinformationisusefultoanalysisinevaluatingafirmsoperationandtoaninvestorinevaluatingtheriskandpotentialreturnstoinvestinginafirmssecurities
Activityratios
Activityratios-forthemostpart,turnoverratioscanbeusedtoevaluatethebenefitsproducedbyspecificassets,suchasinventoryoraccountsreceivableortoevaluatethebenefitsproducedbythetotalityofthefirmsassets.
Inventorymanagement
Theinventoryturnoverratioindicateshowquicklyafirmhasusedinventorytogeneratethegoodsandservicesthataresold.Theinventoryturnoveristheratioofthecostofgoodssoldtoinventory:
Inventoryturnoverratio=Costofgoodssold/Inventory
Accountsreceivablemanagement
Inmuchthesamewayweevaluatedinventoryturnover,wecanevaluateafirmsmanagementofitsaccountsreceivableanditscreditpolicy.Theaccountreceivableturnoverratioisameasureofhoweffectivelyafirmisusingcreditextendedtocustomers.Thereasonforextendingcreditistoincreasesales.Thedownsidetoextendingcreditisthepossibilityofdefault-customersnotpayingwhenpromised.Thebenefitobtainedfromextendingcreditisreferredtoasnetcreditsales-salesoncreditlessreturnsandrefunds.
Accountsreceivableturnover=Netcreditsales/Accountsreceivable
Overallassetmanagement
Theinventoryandaccountsreceivableturnoverratiosreflectthebenefitsobtainedfromtheuseofspecificassets(inventoryandaccountsreceivable.)Foramoregeneralpictureoftheproductivityofthefirm,wecancomparethesalesduringaperiodwiththetotalassetsthatgeneratedthesesales.
Onewayiswiththetotalassetturnoverratiowhichtellsushowmanytimesduringtheyearthevalueofafirm'stotalassetsisgeneratedinsales:
Totalassetsturnover=Sales/Totalassets
Analternativeistofocusonlyonfixedassets,thelong-term,tangibleassetsofthefirm.Thefixedassetturnoveristheratioofsalestofixedassets:
Fixedassetturnoverratio=Sales/Fixedassets
ReceivablesManagement
Whenafirmallowscustomerstopayforgoodsandservicesatalaterdate,itcreatesaccountsreceivable.Byallowingcustomerstopaysometimeaftertheyreceivethegoodsorservices,youaregrantingcredit,whichwerefertoastradecredit.Tradecredit,alsoreferredtoasmerchandisecreditordealercredit,isaninformalcreditarrangement.Unlikeotherformsofcredit,tradecreditisnotusuallyevidencedbynotes,butratherisgeneratedspontaneously:
Tradecreditisgrantedwhenacustomerbuysgoodsorservices.
MonitoringAccountsReceivable:
Youcanmonitorhowwellaccountsreceivablearemanagedusingfinancialratiosandagingschedules.Financialratioscanbeusedtogetanoverallpictureofhowfastwecollectonaccountsreceivable.
Agingschedules,whicharebreakdownsoftheaccountsreceivablebyhowlongtheyhavebeenaround,helpyougetamoredetailedpictureofyourcollectionefforts.
YoucangetanideaofhowquicklywecollectouraccountsreceivablebycalculatingtheNumberofDaysofCredit,whichistheratioofthebalanceinaccountsreceivableatapointintime(say,attheendofayear)tothecreditsalesperday(onaverage,thedollaramountofcreditsalesduringaday):
Numberofdaysofcredit=Accountsreceivable/Creditsalesperday
Thenumberofdayscreditratio,alsoreferredtoastheaveragecollectionperiodanddayssalesoutstanding(DSO),measureshowlong,onaverage,ittakesustocollectonouraccountsreceivable.
InventoryManagement
Inventoryisthestockofphysicalgoodsforeventualsale.Inventoryconsistsofrawmaterial,work-in-process,andfinishedgoodsavailableforsale.Therearemanyfactorsinadecisionofhowmuchinventorytohaveonhand.Aswithaccountsreceivable,thereisatradeoffbetweenthecostsofinvestingininventoryandthecostsofinsufficientinventory.There’sacosttotoomuchinventoryandthere’sacostoftoolittleinventory.
ReasonsforHoldingInventory:
Thereareseveralreasonstoholdinventory.Themostobviousisthatifyousellaproduct,youcanttransactbusinesswithoutinventory.Anotherobviousreasonisthatgoodscannotbemanufacturedinstantaneously. If you manufacture goods, you will likely have some inventory invarious stages of production. This is referred to as work-in-process.
You also may want to have some inventory of finished goods in case sales aregreater than expected. Or you may want to hold some speculative inventory fordealing with events such as a change in the product or a change in the cost of theraw materials.
Further, some firms hold inventory to satisfy contractual agreements. Forexample, a retail outlet that is the sole distributor or representative of a product in aregion, may be required to carry a specified inventory of goods for sale.
The decision to invest in inventory involves, ultimately, determining the level
of inventory such that the marginal benefit (such as. providing for transactions andprecautionary needs) equal the marginal cost (such as carrying costs). The level ofinventory at which the marginal benefits equal the marginal cost is the ownerswealth maximizing level.
Models of Inventory Management:
There are alternative models for inventorymanagement, but the basic idea for all of them is the same:
Minimize inventorycosts.
The Economic Order Quantity Model:
The Economic Order Quantity (EOQ)model helps us determine what quantity of inventory to order each time we order sothat total inventory costs throughout the period are minimized. The economic orderquantity model assumes that:
l. Inventory is received instantaneously.
2. Inventory is used uniformly over the period.
3. Inventory shortages are not desirable.
With these assumptions, firms can minimize the cost of inventory the sum of the carrying costs and the ordering costs by ordering a specific amount of inventory, referred to as the economic order quantity, each time they run out ofinventory.
Monitoring Inventory Management:
We can monitor inventory by looking atfinancial ratios in much the same way we can monitor receivables. The number ofdays of inventory is the ratio of the dollar value of inventory at a point in time to thecost of goods sold per day:
Number of days of inventory = Inventory/Average day’s cost of goods sold,
This ratio is an estimate of the number of days’ worth of sales you have onhand. Combined with an estimate of the demand for your goods, this ratio helps you in planning your production and purchasing of goods. Another way to monitorinventory is the inventory turnover ratio- -the ratio of what you sell over a period(the cost of goods sold) to what you have on hand at the end of that period(inventory):
Inventory turnover =Cost of goods sold/Inventory,
The inventory turnover ratio tells you, on average, how many times inventoryflows through the firm from raw materials to goods sold-during the period. If thetypical inventory turnover for a firm is, say, five times, that means that the firmcompletes the cycles of investing in inventory and selling in five times in the year. Ifthe turnover is less than usual, this may suggest either production is slower(resulting in relatively more work-in-process) or that sales are sluggish and perhapsneed a boost from providing sales incentives or discounting prices.
Also, interpretation of an inventory turnover ratio is not straightforward.Is ahigher turnover good or bad?
It could be either. A high turnover may mean that thefirm is using its investment in inventory efficiently. But it might mean that the firmis risking a shortage of inventory. Not keeping enough on hand (relative to what issold)incurs a chance of lost sales and customer goodwill. Using inventory turnover
ratios along with measures of profitability can give you a better idea of whether you
are getting an adequate return on your investment in inventory.
The management of current assets. requires balancing the cost of having toomuch tied up in the asset against the benefits of having a sufficient amount of theassetsonhand.Thoughbusinesspracticesandcustomsdifferamongindustries,thegeneralideainthemanagementofreceivablesistograntcredittoencouragesalesandstaycompetitive,whileconsideringthecostoftyingupfundsandofpossibleincurringbaddebts.Inthemanagementofinventory,theinvestmentininventorydiffersamongindustriessincethenatureofthegoodsforsalesdictatesinlargepartthetypeofinventoryrequired.Theeconomicorderquantitymodelandthejust-in-timemanagementtechniquecanaidthefinancialmanagerinmanagingtheinvestmentininventory.
Thecommonpurposeofdecisionsrelatedtoaccountsreceivableandinventoryistominimizeinvestmentinshort-termassets.Butinallcases,youmusthavesomeinvestmentintheassetbecauseyouwillincurcostsifyoudonothaveenoughoftheasset.Ifyoulacksufficientinventoryoryoufailtooffercompetitivecreditterms,youmaylosesalestoyourcompetitors.
Receivablemanagementinvolvesatradeoffbetweenthebenefitsofincreasedsalesandthecostsofcredit(forexample,theopportunitycostoffundsanddefaultsbycreditcustomers).
Creditandcollectionpoliciesmustbeformulatedtoconsiderthebenefitsarisingfromincreasingsalesandthecostsassociatedwithextendingcredit.
Inventorymanagementinvolvesatradeoffbetweenthebenefitsofhavingsufficientinventorytomeetdemandandthecosts-ofinventory(forexample,theopportunitycostoffunds,st
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